How to Budget the Right Way

Hi there! Last month, when I shared my post on how to stop overspending for Christmas, I promised more of my beloved spreadsheets in the new year. Well, this is one of those days! Today I’m going to talk about budgets. I know, it’s not the most exciting topic (unless you’re a numbers gal like me!), but if done correctly, a budget will help you stop overspending, achieve your financial goals, and make the most of the money you have!

**Links in this post may be affiliate links. This means that if you click that link and purchase the product, I may receive a small compensation. I am, however, committed to honestly assessing the products mentioned. Please read my disclosure policy for more details. **

A Few Questions For You …

• Do you often lose track of your bills, forgetting which ones you have paid and which ones have yet to be paid?
• Do you get to the end of the month and wonder what happened to all your money?
• Does your bank account always seem to be depleted?
• Are you feeling like you’re never making any headway on your financial goals?
• Have you tried budgeting, but found it hasn’t made a difference?

If you answered “yes” to any of those questions, read on! I’m going to help you turn things around!

(Even if you answered “no,” keep reading. I have a free downloadable budget spreadsheet at the end that might still make your life easier!)

A Caveat …

I’m going to preface what I’m about to tell you with this: I’m not a financial expert, nor am I a millionaire. Not even close.

This isn’t going to be a post about how to get rich. Sorry!

What it is going to be about is how to organize your finances so that the money you do have works for you and not against you. It’s going to be about how to remain in control of your hard-earned money. It’s going to be about how to stop spending money you don’t have, once and for all.

A Word About Budgets

I started setting somewhat of a budget as soon as my husband and I were married. Initially, he laughed at my spreadsheets. He prided himself on being able to keep track of everything in his head. And when he was a bachelor, he really could. But two people with two wallets doing two separate things without any kind of record-keeping? That’s a recipe for disaster.

My first “budgets,” though, were just organized lists of expenditures. Don’t get me wrong – that’s a great place to start! If nothing else, you should at least keep track of how much money you’re spending so you don’t end up overdrawn.

But I knew my system had room for improvement. We had big goals, we were starting a family, and I wanted to remain working part-time.

So I started doing some research into budgeting, at the same time drawing on my business/accounting education as an undergrad.

One of the names I discovered and explored was Dave Ramsey. I read The Total Money Makeover, and immediately knew where I had gone wrong.

I was being reactive, writing down what I had spent after I had spent it, when I needed to be proactive, telling my money where to go before the fact.

Once I figured that out, it revolutionized the way I budgeted. I started creating an actual budget at the start of every month, and, following Dave Ramsey’s advice, I assigned a purpose for every single dollar. This is called Zero Sum Budgeting.

The point of zero sum budgeting is to make income minus expenses equal zero. I know what you’re thinking, but this does not mean that you spend all of your money and never build a savings. It simply means that every dollar gets allocated somewhere. Some of those dollars will get assigned to either savings or debt repayment. It is a very effective form of budgeting because money without a purpose will get spent somewhere, usually frivolously and carelessly.

Money without a purpose will get spent somewhere, usually frivolously and carelessly.

For more information about zero sum budgeting, check out my Resources section below.

My Budget Process

Now that I follow a zero sum budget, how do I set it up? Here is my process:

1. I set up a spreadsheet worksheet for the entire year.
2. Each month has two columns: a “Budget” column where I assign every dollar we expect to earn to various spending categories, and an “Actual” column where I record actual income and expenditures.

For the Budget column:

1. I first go through and input all my fixed bills – the bills that are the same every month (mortgage, Internet, cell phone, etc.).

   Note: For our family, this is also when I budget our tithes and our savings because I treat them as non-negotiable. Because we are committed to paying off our mortgage early, this is also when I budget for that extra principle payment. If you have a big goal, you MUST treat it as non-negotiable as possible.

2. Next, I do all the variable non-negotiable expenses – the bills that are variable, but must be paid (water, electric, etc.).

   Note: I based these on the previous month until I had a couple years worth of expenses, after which I used the same month from the previous year.

3. Next, I assign amounts for our recurring, but not imposed, expenses, based on our spending history. These are the things that come up every month, but on which I have some control over how much is spent (groceries, fuel, toiletries & household expenses, etc.). I have more wiggle room over these than I do over bills.

   

4. After all the expected bills and expenses, I assign an amount each month to “just in case” areas. These are for the unforeseen, but potentially large, expenses, like auto and home repair.
5. Towards the end, I budget for my “other” category – purchases we’re planning to make that don’t necessarily fit in the other categories. After a couple of years, I developed a pretty good sense for how much to plan for here. Of course, this is a very flexible area, so if something comes up somewhere else, this can easily be reduced by cutting back.
6. Finally – and that is the key word!! – I budget for the “fun” areas: entertainment, eating out, clothes, and our “free spending” money.

   Note: This is where so many people go wrong. They do this out of order. This category must be budgeted last, AND when extra expenses come up during the month that you haven’t budgeted for, this should be the first area cut!

7. BONUS: If we have money left over that is not already being used somewhere, I assign it to either savings or paying down our mortgage. That is the beauty of zero sum budgeting – every dollar works for us!
   

   That’s the beauty of zero sum budgeting – every dollar works for us!

For the Actual Column

The “Actual” column is pretty self-explanatory. I record all our actual expenditures there. I *try* to do this every week and review it with Levon so we make sure we’re on track with our budget.

Note: If I have expenses for two or more different categories on the same receipt (like groceries and toiletries), I separate the amounts into their correct and respective categories. That isn’t totally necessary, but it’s helpful for two reasons: 1)It helps me set future budgets, and 2)It gives me a more precise picture of where we’re spending our money.

As you record your expenditures, if you find that you under-budgeted for certain categories, adjust them as you go! Just be sure to keep that zero sum by cutting back in another area. For example, if you need work done on your car that exceeds your expected value, adjust your budget for auto repairs and reduce your budget for, say, eating out or free spending. Again, those “fun” areas should be the first to go when you have unexpected expenses!

My Gift to You

Whew! Now that we’ve gotten through the explanation of my budget, you may be thinking, “How in the world am I going to do all that?” Or maybe you just don’t have the time … or inclination.

I’ve got you covered! To say “Thank you” for sticking with me, I’m including a link to a downloadable version of the very budget I just described.

Let me know if you have any questions, and happy budgeting! 🙂

Click here to get your FREE downloadable budget spreadsheet!

 

Resources

• Zero Sum Budgeting – an excellent article that explains the theory and process
• The Total Money Makeover by Dave Ramsey – I HIGHLY recommend this book, even if you think you’re in pretty good financial standing. You will learn ways to achieve your goals even faster and more efficiently!
• Financial Peace University DVD Home Study Kit – If you need a financial turnaround fast, you should consider investing in this kit. Yes, I know it’s spendy, and when you’re already in debt that seems counterintuitive. But everyone I’ve talked to about this course (we’ve done it a few times at my church) says it’s well worth the money.

  Or, if you just can’t swing the price of the whole kit, you should at least get your hands on The Financial Peace Planner. It’s not as comprehensive as the kit, but it’s still full of great information. Your local library probably even has a copy you can check out for free!

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• How to Stop Overspending for Christmas – with free gift budget worksheet
• 8 Ways I Rock My Schedule (And Get More Done)
• 5 Tips to Eliminate Digital Clutter
• 5 Tools for the Remarkable Year You’ve Always Wanted